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It would be very useful for on-chain financial derivatives based off a more accurate inflation gauge. I don't trust the official CPI numbers and don't see them

by bko 5y ago

It would be very useful for on-chain financial derivatives based off a more accurate inflation gauge. I don't trust the official CPI numbers and don't see them as accurately reflecting my cost of living increases over the years. Couple in the fact that there are literally trillions in pension benefits tied to CPI, so the incentive to manipulate these numbers is huge. It's already very opaque. If you look at the constituents [0], housing, education and health care make up around 60%, so it makes no sense that inflation has been flat for the last ten years. The prices would ideally come from a large number of sources and some averaging would take place. [0] https://www.advisorperspectives.com/dshort/updates/2021/07/14/inflation-the-components https://www.advisorperspectives.com/dshort/updates/2021/07/1...

lend000 5y ago
The CPI basically measures the median American's budget. So if wealth inequality is unchanging, then it's a decent measure of economy-wide inflation. Otherwise, it measures inflation x delta wealth inequality.
- paulryanrogers 5y ago
  What if those budgets have significantly less buying power? Especially in critical areas like housing, healthcare, and education?
  - lend000 5y ago
    Then people will tend to buy less of them to fit their budget. Here is the most telling chart: inflation-adjusted wages in the US [0]. They never change, because the CPI uses a survey to determine what the average American is buying, and how much it costs, then they adjust weights based on how much they spend on it (which cancels out the cost because people change their buying preferences based on current prices) and leaves you with the median American's total expenditure. Yeah, that's really how they do it. And that's why CPI is a joke. [0] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
    - paulryanrogers 5y ago
      Is it possible people are buying less by volume, even if amounts spent level off? For example smaller homes, less healthcare, getting less educational value per (adjusted) dollar spent?
      - lend000 5y ago
        Yes, that's exactly it. Such changes are not well reflected in the CPI model.
gruez 5y ago
>I don't trust the official CPI numbers and don't see them as accurately reflecting my cost of living increases over the years. What makes you think a NGO would do a better job? On one hand they might not have the same incentive to manipulate the numbers in the same way that the government would, but that would be replaced with an incentive to come up with whatever numbers that their donor base would like to see (see also: media companies adjusting their coverage to retain subscribers). >If you look at the constituents [0], housing, education and health care make up around 60%, so it makes no sense that inflation has been flat for the last ten years. Are you missing a part of your argument here? You just say that a few categories make up 60% of the CPI, then immediately conclude that "it makes no sense that inflation has been flat". >The prices would ideally come from a large number of sources and some averaging would take place. The problem is that you need to do various subjective adjustments (eg. the controversial "hedonistic adjustments") for the numbers to make sense.
- bko 5y ago
  > What makes you think a NGO would do a better job? Maybe they wouldn't do better, but they wouldn't have a trillion dollar incentive and ideally there'd be competing metrics. > Are you missing a part of your argument here? You just say that a few categories make up 60% of the CPI, then immediately conclude that "it makes no sense that inflation has been flat". In the US, over the last 10 years housing, education and health care have grown by a lot while official inflation has been historically very flat (0 - 2%). Health care: On a per capita basis, health spending has increased over 31-fold in the last four decades, from $353 per person in 1970 to $11,582 in 2019. [0] Housing: Median home price was around ~210k in today's dollars ten years ago and is now ~314k [1] Education: The cost of college increased by more than 25% in the last 10 years [2] > The problem is that you need to do various subjective adjustments Sure, but again, I don't trust the officials to do this given the trillion dollar incentive to fudge the numbers. [0] https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/#:~:text=On%20a%20per%20capita%20basis%2C%20health%20spending%20has%20increased%20over,1970%20to%20%2411%2C582%20in%202019 https://www.healthsystemtracker.org/chart-collection/u-s-spe.... [1] https://dqydj.com/historical-home-prices/ https://dqydj.com/historical-home-prices/ [2] https://www.cnbc.com/2019/12/13/cost-of-college-increased-by-more-than-25percent-in-the-last-10-years.html https://www.cnbc.com/2019/12/13/cost-of-college-increased-by...

by bko 5y ago

lend000 5y ago

The CPI basically measures the median American's budget. So if wealth inequality is unchanging, then it's a decent measure of economy-wide inflation. Otherwise, it measures inflation x delta wealth inequality.

paulryanrogers 5y ago
What if those budgets have significantly less buying power? Especially in critical areas like housing, healthcare, and education?
- lend000 5y ago
  Then people will tend to buy less of them to fit their budget. Here is the most telling chart: inflation-adjusted wages in the US [0]. They never change, because the CPI uses a survey to determine what the average American is buying, and how much it costs, then they adjust weights based on how much they spend on it (which cancels out the cost because people change their buying preferences based on current prices) and leaves you with the median American's total expenditure. Yeah, that's really how they do it. And that's why CPI is a joke. [0] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
  - paulryanrogers 5y ago
    Is it possible people are buying less by volume, even if amounts spent level off? For example smaller homes, less healthcare, getting less educational value per (adjusted) dollar spent?
    - lend000 5y ago
      Yes, that's exactly it. Such changes are not well reflected in the CPI model.

gruez 5y ago

>I don't trust the official CPI numbers and don't see them as accurately reflecting my cost of living increases over the years. What makes you think a NGO would do a better job? On one hand they might not have the same incentive to manipulate the numbers in the same way that the government would, but that would be replaced with an incentive to come up with whatever numbers that their donor base would like to see (see also: media companies adjusting their coverage to retain subscribers). >If you look at the constituents [0], housing, education and health care make up around 60%, so it makes no sense that inflation has been flat for the last ten years. Are you missing a part of your argument here? You just say that a few categories make up 60% of the CPI, then immediately conclude that "it makes no sense that inflation has been flat". >The prices would ideally come from a large number of sources and some averaging would take place. The problem is that you need to do various subjective adjustments (eg. the controversial "hedonistic adjustments") for the numbers to make sense.

bko 5y ago
> What makes you think a NGO would do a better job? Maybe they wouldn't do better, but they wouldn't have a trillion dollar incentive and ideally there'd be competing metrics. > Are you missing a part of your argument here? You just say that a few categories make up 60% of the CPI, then immediately conclude that "it makes no sense that inflation has been flat". In the US, over the last 10 years housing, education and health care have grown by a lot while official inflation has been historically very flat (0 - 2%). Health care: On a per capita basis, health spending has increased over 31-fold in the last four decades, from $353 per person in 1970 to $11,582 in 2019. [0] Housing: Median home price was around ~210k in today's dollars ten years ago and is now ~314k [1] Education: The cost of college increased by more than 25% in the last 10 years [2] > The problem is that you need to do various subjective adjustments Sure, but again, I don't trust the officials to do this given the trillion dollar incentive to fudge the numbers. [0] https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/#:~:text=On%20a%20per%20capita%20basis%2C%20health%20spending%20has%20increased%20over,1970%20to%20%2411%2C582%20in%202019 https://www.healthsystemtracker.org/chart-collection/u-s-spe.... [1] https://dqydj.com/historical-home-prices/ https://dqydj.com/historical-home-prices/ [2] https://www.cnbc.com/2019/12/13/cost-of-college-increased-by-more-than-25percent-in-the-last-10-years.html https://www.cnbc.com/2019/12/13/cost-of-college-increased-by...